Ireland's economic woes deepened today after ratings agency Fitch took a pessimistic view of the country's outlook and downgraded its debt.

Fitch said Ireland would lose its AA- rating in favour of the lesser A+. The ratings agency also said the unstable outlook meant it would be put on "negative watch".

The move is a blow after recent attempts by the Dublin government to put a floor under the country's massive debts.

The latest downgrade takes Ireland to a new, lower level that is expected to increase the interest it pays on its outstanding loans. Both Moody's and Standard & Poor's still rate Ireland at the higher grade of AA2 and AA-, respectively, although Moody's warned on Tuesday that it was considering cuting its rating, most likely by one notch.

In a further blow, Irish consumers have reacted to the economy's grim outlook by deserting the high street.

He said: "The normally remote world of bond markets has become all too familiar to Irish consumers in the past month and these usually 'unknown unknowables' prompted an element of panic among Irish consumers about their future."

Hughes said there was now a real risk that consumers and businesses would pull back from spending, prompting a further dip in activity as they await the details of Ireland's new four-year budgetary plan due to be unveiled next month.

"The key task for government is to convince consumers that the upcoming adjustment is manageable in the sense of both curing the public finances and not killing the Irish economy," he said.

The government warned last week that it would need to pump extra funds into its major banks to meet capital requirements. The taxpayer will need to find €46bn overall and nationalise Allied Irish Bank, said finance minister Brian Lenihan.

A report by the financial regulator also pointed to problems with Irish credit unions, which he said had "systemically underprovisioned" against loan losses. "We are finding systemically ... underprovisioning in the credit union sector," Matthew Elderfield told a parliamentary committee. "That's a worry to me."

Elderfield said that the regulator had discovered credit unions were "underprovisioning" by 40% and he intended on dealing with this problem.